Tax ruling affirms Indian status rights

MONTREAL — In a decision aboriginal leaders are hailing as the most crucial affirmation of Indian status rights in a quarter century, the Supreme Court of Canada has ruled that a Huron moccasin maker who took out term deposits at a credit union on his Quebec reserve does not have to pay tax on the interest he earned on his investment.

The court on Friday upheld an appeal by the estate of Roland Bastien, a status Indian who belonged to the Huron-Wendat nation. Mr. Bastien did not live to see the outcome of the case as he died six years ago.

For 27 years, Mr. Bastien ran a small business that makes Hiawatha-brand handbeaded moccasins on the Wendake Reserve near Quebec City. He invested some of the income from the operation and sale of his business in term deposits with the Caisse populaire Desjardins du Village Huron, a credit union on the reserve.

Term deposits are money certificates made at banks that pay a fixed interest rate until a specific maturity date, at which point the investor gets his money back. Generally, the returns are higher than regular savings accounts but lower than riskier stocks or bonds.

Mr. Bastien’s term deposit earned interest that was placed in a savings account he held at the credit union. He believed the income was property-exempt from taxation under section 87 of the Indian Act.

The Canada Revenue Agency believed otherwise, adding the investment income to Mr. Bastien’s income for the 2001 taxation year. The people in charge of Mr. Bastien’s estate appealed the decision in court but lost at both the Tax Court of Canada and the Federal Court of Appeal.

Both courts ruled that the Village Huron Caisse generated its revenues outside the reserve, not on it, and therefore the interest paid to Mr. Bastien was not exempt from taxation.

But the Supreme Court rejected that opinion. It found the lower courts gave too much weight to the fact that the Caisse produced its revenues in the “commercial mainstream” off the reserve.

“The question is the location of [Mr. Bastien’s] interest income and not where the financial institution earns the profits to pay its contractual obligation” to him, the court said in its unanimous decision. “The exemption from taxation protects an Indian’s personal property situated on a reserve. Therefore, where the investment vehicle is … a contractual debt obligation, the focus should be on the investment activity of the Indian investor and not on that of the debtor financial institution.”

Konrad Sioui, grand chief of the Wendake reserve, cheered the decision, calling it the most important ruling on aboriginal taxation since the Indian Act was created and the first time aboriginals have really won something from their Indian status since the Nowegijick Supreme Court decision in 1983. In that case, the court ruled that an aboriginal could also work off-reserve tax-free, as long as the employer was based on a reserve.

“We’re not asking for too much because we’ve lost so much ground for the last 20 years,” Mr. Sioui said in an interview. “This was the last possibility for us” to make sure that we could restore some balance to living on an Indian reserve, which has some negative aspects.

Shawn A-in-chut Atleo, national chief of the Assembly of First Nations, said the decision will foster economic development for all Indian communities that will help alleviate the poor conditions and low employment plaguing them.

“The onus is now on the Canada Revenue Agency to work with First Nations to change its approach and policies in a way that promotes reconciliation and respects the nation-to-nation relationship between First Nations and the Crown,” he said in a statement.

A number of people will have the right to tax refunds as a result of the judgment, although it was unknown Friday how many people or what sums are involved.

In a related appeal heard at the same time as that of Mr. Bastien, the Supreme Court upheld Friday that another aboriginal, an Attikamek Indian named Alexandre Dubé, is also exempt from tax on interest he earned on term deposits with an on-reserve credit union.

According to the federal government’s Indian Registry System, there were 704,851 Status Indians as of December 31, 2002. Of these, 13,184 were living outside of Canada.